Now that the damage is done, our housing and financial markets wrecked, what's Congress doing to fix the mess? It's serving up pork, raising taxes, and regulating the interstate sale of monkeys..

I blame Congress. So should you.

Who's not to blame? Ratings agencies. The ratings agencies did their best.

But my fellow Fool David Lee Smith tells us that the ratings agencies -- Moody's (NYSE: MCO) , McGraw-Hill's (NYSE: MHP) Standard & Poor's, and Fitch -- are to blame for the mess we're in today.

According to David, they're the ones who failed to provide "in-depth and accurate analyses of the contents of mortgage-stuffed securities." Instead, they tried to apply their own time-tested models for rating corporate debt to the newfangled financial products that were coming out of Wall Street. But can you blame them?

I mean, these were totally novel products, with which the raters had no prior experience. So maybe they cut corners trying to fit polygonal pegs into round holes -- but until you try that, and fail, how do you know the polygon won't fit? The raters made their best guesses at the likelihood of MBS defaults. They guessed wrong. They'll do better next time.

The case for the ratings agencies, by David Lee SmithIn the past, I've written several articles for The Motley Fool attempting to place the blame for our housing apocalypse and the credit crunch that stemmed from it. I've named everyone from the lenders to Congress to borrowers, and even thrown in an avaricious realtor or two.

But beyond these groups, and perhaps some overzealous homebuilders -- I'm thinking of the likes of Toll Brothers and Beazer -- I'm convinced that there are other participants in this chain of events who have received minimal attention, and without whose clear incompetence housing's metastasis to the general credit arena likely wouldn't have occurred. I'm speaking here in particular of the ratings agencies, folks such as the Standard & Poor's unit of McGraw-Hill, Moody's, and Fitch Ratings.

These firms were hired by the likes ofGoldman Sachs (NYSE: GS) and Morgan Stanley (NYSE: MS) to bless their mortgage-backed packages, and they apparently did so with indiscriminate rubber stamps. With more diligence and professionalism on the part of the raters, what we now call "toxic" loans might have been filtered from investors' portfolios, and our current financial world would have been less afflicted than it is.

You'll recall that during his term in office, President Harry Truman adorned his office with a famous sign reading "The Buck Stops Here." So we just might want to climb high on the Washington ladder to find those most culpable for our worsening financial catastrophe.

Indeed, there are those who would hold Congress culpable for our current set of housing difficulties, and by extension our financial mess. But Congress consists of more than 500 individuals, and it's rare to get them to agree on anything. I continue to believe that the team most identifiable for not averting our current contagion can be limited to the ratings agencies, a small group who clearly didn't dig deeply enough into, or properly evaluate, the products they were examining.

Vote now!Now it's your turn. What do you think is more responsible for the mortgage mess: the incompetence of Congress or the incompetence of the ratings agencies? Make your pick below.

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Raters at all the ratings companies told their superiors that they should NOT be rating these things and were ordered by their superiors to rate them anyway. The higher-ups were greedy and wanted the commissions. They knew that if they did not well-rate these packages, the customers would go to the other services. They should go to jail for fraud.

Yea...but we don't elect Congressmen because they're financial gurus...we elect them because we want to have guns, fight abortion and other single issues. Seirously, they are there to to develop policy and direction.... Only some of them know much about finances or economics...that's why they created overdsight agencies and supposedly hire people who do have the knowledge and ability to read financial statements--byzantine as they may have become. Now some committees should have been watching granted.... On the other hand -- the Congress and the American Public have been mesmerized by by all the "free market" and deregulation blather...we are all to blame...How about changing the term of office of Representatives from 2 to 4 years...so they can really begin overseeing and reading stuff rather than always flying home and electioneering.

Congress is justifiably unpopular today and it is rife with corruption. But its corruption, for the most part, did not cause the financial mess. The rating agencies were in bed with the people whose products they were rating.

I can't vote on this one. It's too hard. I think they've both done a terrible job. Would the stupid ratings agencies even exist if weren't for the stupid government requiring companies to get ratings. But I certainly don't agree that the ratings agencies did the best job the could.

Sending report...

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